Here we are facing another Federal Reserve event, as if we haven’t had enough of those. This one comes to us from the Jackson Hole meeting. Experts worry that they could announcing the pre-announcement of the taper schedule. No, that wasn’t a typo, I repeated the words with purpose. I borrowed from Fed Chair Jerome Powell’s jeu de mots regarding the matter, “talking about talking about” the taper process and meetings. This Federal Reserve team is one for the books. The upside of their extreme bullishness is the opportunity to buy stocks on dips with confidence.
Today I’m sharing three quality companies that have fallen on bad price action. Meanwhile, we have to acknowledge that the whole market is too frothy. This is especially true since we are on schedule to lose the biggest tailwinds we have ever had.
The taper is coming, and investors should be thinking about what will happen next. This is how the Fed starts the beginning of the end of its quantitative easing. First they alter their monthly asset purchase program. They will announce when this will begin, and for how much. My guess is that it won’t be aggressive, which should suit the strategy of finding stocks to buy. Investors could panic on the headlines, thereby offering cooler head investors opportunities.
The three stocks to buy now are:
Stocks to Buy: Palantir (PLTR)
The first stock of the day is an opportunity that came up suddenly yesterday. Palantir fell on news of a possible data breach. When a quality company falls on a temporary headline, it more often than not is a buying opportunity. I did this with Facebook (NASDAQ:FB) on many occasions, even when at times it looked like an impending disaster. You probably recall the Cambridge Analytica crisis — in the end, FB stock broke records not too long after.
So far, I see Palantir similarly. The stock’s movement is way too violent on any day; short term, the moves are daunting. Cool heads should prevail when dealing with such a stable company, though. They have a book of business that is growing rapidly. Palantir serves two fronts. Their commercial and government business are both healthy. Their revenue run-rate is $1.5 billion and accelerating.
They recently reported earnings, and investors liked what they saw. The stock rallied 6% on the headline, so this too shall pass. The drop in response to the news brought PLTR stock closer to the bottom end of the short-term range. Since the earnings pop, it has traded inside of a box between $23.50 and $26 per share. Any breach of those edges will carry momentum in that direction.
If the stock market holds up in general, I don’t see PLTR losing its footing. My guess is that it would find support here, or a dollar lower. Either case, long-term investors need not worry about these short term hiccups. Every major dip in the stock has offered a great buying opportunity. Eventually, if the stock markets are higher, PLTR stock will be one of the winners. If I’m long PLTR, I don’t give up on it. If I were looking to get long this could be a starting opportunity, but I wouldn’t go all in. There’s always the chance that there’s more to the story than we know — investors should leave some room for error.
My second pick today was the disaster du jour yesterday. SAVA stock collapsed 31% on a headline. The news came from Labaton Sucharow, who accuses the company of data manipulation. I learned long ago to avoid reacting to someone else’s opinion or allegations. In this case I am willing to give the company the benefit of the doubt. The onus is on the accuser, and Cassava deserves the chance to offer rebuttals.
Meanwhile, a similar dip happened less than a month ago. Late July, SAVA stock collapsed to a low of $65. Back then, the selling was from news that traders interpreted as bearish. The bulls believed otherwise and stepped up to the plate. The stock rebounded and rallied almost 100% in nine trading days.
I can’t promise that this will be as equally as impressive, but it’s worth a shot. Because we don’t really know the truth, I must label this opportunity as speculative. Don’t break the piggy bank with this one, but consider an appropriately-sized bet.
Since the company is still in the trial phase, there is no need to discuss financial metrics. The outcome of this debate is binary, because the news is either right or wrong. Either way, I would estimate that it will take time for the verdict. Meanwhile, the bulls won’t wait and they will try to buy the dip again.
If investors catch another big gain they should book it or at least scalp some, just in case Labaton Sucharow’s proverbial smoke foretells a real fire. Personally, I hope that the accusations are false — the world could use some good news for treatments for Alzheimer’s disease.
Stocks to Buy: StoneCo (STNE)
Fintech is hot, especially because of the pandemic. The digitization of our day to day lives has been ongoing for decades, but the world had been dragging its feet. Everyone agreed it was “the future” but there was no sense of urgency. After the lockdown forced us all online, that urgency became real.
Keep in mind how other fintech companies have performed in this period. Square (NYSE:SQ), for example, is over 700% higher than its March 2020 low. STNE stock was up over 450% from its low last year in February, but it didn’t last. Since then, sellers have done a good job keeping it low. This may be about to change as it approaches $50 per share.
This was an important, contentious zone in March of 2019, but the bears ultimately won that fight. A year later, Covid-19 hit, and after a few bad months, the stock rallied. The 2020 rally finally gave the STNE bulls enough momentum to bust through the resistance. They did that almost a year ago, and now they are revisiting the neckline for footing. This is part of normal price action.
If markets in general hold up, STNE stock has the opportunity to rally 30% this fall. Long term, being in the right space and doing the right things will bring the company success. Investors in StoneCo include big names like Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). The opportunity in Brazil has scale, so the runway for this company is very long.
This is also a good time to remind you that nothing is an all in proposition here. These market conditions are new to everyone, so we don’t know what we don’t know. Be smart and leave some room for error.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.